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Are We Nearing the End of the World?¶
At our current pace, the world will burn through its remaining “carbon budget” by 2030.
Who Should Be Held Accountable?¶
62% of GHG emissions stem from the Global South
92% of excess emissions stem from the Global North
At the heart of the issue:
70% of GHG emissions stem from the T-100 companies (since 1988)
ESG arose from governmental action on corporate emissions, beyond cap-and-trade and carbon tax methods.
Where Did ESG Come From?¶
Geneva Climate Conference, 1979: First use of the word ESG in response to industrially-induced climate catastrophes in North Germany
Source: Google nGram
2004 - Who Cares Wins:
- Popularization of word through UN conventional report
- First glimpse of corporate accountability
- Started an upwards trajectory in incorporation
2019 - BioScience - Climate Emergency:
- Statement published by 11,000 scientists from 153 nations
- Highlighted the disproportionate emissions rates of corporations
- Decried the failure of flexible mechanisms and the need for regulation
44 Years + 682 Conferences Later: ESG utilized across U.S. and European markets.
The Focus: The Global North-ESG Premium¶
- Over the past 20 years: Capital invested into testing environmental and social solutions
- Robust, positive impact of ESG integration observed on 3 factors: A) Profitability B) Reduced Capital Costs and C) Environmental Consequences
Source: MSCI Database
Unequal Understanding: The Global-North Skew¶
Of my 44 initial sources on LitMaps, only 2 pertained to ESG in emerging markets.
Two Foundational Concepts: Emerging Markets Perspective¶
A) Garcia, 2020: Institutional Difference Hypothesis¶
The strength of a country’s social, economic, and regulatory institutions dictate both the robustness with which CSR is promoted and the magnitude of its pay-off.
B) Divergent Emerging Market Results - Lack of Conclusive Literature:¶
- Liu, 2009: No correlation across 175 Chinese companies over 20 years
- DuqueGrisales, 2021: Negative correlation across 107 multilatina firms
- Dobers, 2009: ESG adoption depends on institutional and economic baseline
India¶
China¶
South Africa¶
In this research:¶
- Address the literature gap considering recent positive observations
- Perform a combinatory analysis across the BICS to study the IDH
- Investigate the resilience of EM-ESG firms post-COVID-19
Research Question: Does there exist an ESG premium across the BICS countries?
Methodology¶
Variables¶
Independent Variables: ESG Scores¶
- Controls: Regions, Market Cap, Financial Disclosures
- Self-Curated Sample: 276 data points across three years
- PS: Long-term outperformance considering:
- Operational strategy
- Management practices
- Finite resources
- Labor standards
- GC: Adherence to four UN Global Compact principles to assess reputational risk
- PS: Long-term outperformance considering:
The Four Regressions¶
Regression 1:
$ ln(ROA)_t = \beta_0 + \beta_1 PS_t + U_t $
Regression 2:
$ ln(ROA)_t = \beta_0 + \beta_1 GC_t + U_t $
Regression 3:
$ ln(ROA)_t = \beta_0 + \beta_1 PS_t + \beta_2 E_t + \beta_3 S_t + \beta_4 G_t + U_t $
Regression 4:
$ ln(ROA)_t = \beta_0 + \beta_1 PS (Non-Financial)_t + U_t $
*R4 Robustness Test: Financial companies artificially augment profitability metrics (OVB)¶
Results¶
2. Geographic Bias¶
Regression Results¶
Overall, the regressions indicated a positive CSR-CP relationship.
Regression 1:¶
$$ ln(ROA)_t = \beta_0 + \beta_1 PS_t + U_t $$
Keynote Findings:
- Beta: 1 unit increase in PS score corresponds to a 0.22% ROA increase
- R-squared value: PS score explains 34% of the variability in ROA
- Valid intercept at -6.5
Regression 2¶
$$ ln(ROA)_t = \beta_0 + \beta_1 GC_t + U_t $$
Keynote Findings:
- Beta: 1 unit increase in GC score corresponds to a 0.09% ROA increase
- R-squared value: GC score explains 7.9% of the variability in ROA
- Decreased influence as pertains to adherence to UN Global Compact principles
Regression 3: Elemental Effect on ROA¶
$$ ln(ROA)_t= \beta_0 + \beta_1 ESG_t + \beta_2 E_t + \beta_3 S_t + \beta_4 G_t + U_t $$
The regression outcomes underscore a robust, positive relationship between ESG integration and corporate profitability.¶
Continued Discussion¶
Missteps + Areas for Improvement:
Data Sampling: Collected from free, online database with ESG proclivity
- Need a diverse array of companies
- Must satisfy all conditions for causal inference
Presence of OVB: Firm fixed effects
- Distinct company attributes affect each firm's ESG incorporation
- Need to incorporate dummy variable to combat idiosyncratic effects
Potential Avenues for Future Research:
- Observe whether returns to ESG vary based on firm size
- Identify a marginal rate of depreciation associated with ESG integration
Next Steps: The Urgency for Incentives¶
Next 30 Years: EMs’ share of the global market cap will rise to: